Blockchain in Trade – are we missing the point?

What is the most resilient parasite? Bacteria? A virus? An intestinal worm? An idea. Resilient…highly contagious. Once an idea has taken hold of the brain it’s almost impossible to eradicate.

– “Inception” (2010)

Similar to an idea in the movie Inception, Blockchain or Distributed Ledger Technology (DLT) has been imprinted on our brains as THE solution for just about everything. But recently, there has been a plethora of negative articles around the blockchain. And I for one am never about technology for technology sake. But let’s wait a second here and not throw the Baby out with the Bathwater. It really has only been 24 months or so since Distributed Ledger Technology started ramping up. I mean Amazon was still only selling books online after its first two years, so why does DLT/Blockchain have to change the world so fast?

Blockchain has helped banks come together to think differently about how they solve problems. Many will say why use Blockchain just for the sake of it, which is true when and where APIs and Open Banking can achieve the same results.

I believe a disservice was done when Trade Finance was selected as THE key area by the McKinseys and others of the world to address “all that Paper”. What problem are you trying to solve? Getting rid of paper? Helping with SME funding gaps? We then have had significant investment in the area with so little in the way of production results. That’s not to say the Skuchains, TallySticks, Waves, TradeIx and others are going to fail, in fact, a few may be huge successes. I think there were better areas to focus on besides trade– such as collateral registries - for example, the UCC Lien registry process for recording liens on receivables. But that is a subject for another day.

The issue with Blockchain is really about how Ecosystems behave and interact with one another - think biology and a marine ecosystem. Marine ecosystems are a diverse interlinked network of species with all types of complex adaptive systems. In business, we have trusted advisors that sit in these ecosystems (egs. Custodian agents, Banks, Clearinghouses, etc.) And trust advisors do not like being disrupted. So you need big incentives to make changes.

The other issue is when innovation can automate away middle management or budgets for IT projects get outsourced, people are going to fight progress. It happens at every bank.

This process will take longer than people think, but the payoff could be worth it for the millenials to view as a career opportunity. I am seeing it with the MBA program I advise at Simon Fraser University. Blockchain is only a piece of an overall technology solution. ERP systems are already working on native DLT in their ERPs. So these systems of records will operate on different architecture. If blockchain works, no one will say that term. No one says I use my relational database AirBnb app.

There are technical things about the blockchain that make it a great technology– for example, how it structures data to make it smart. If everyone says this is a distributed database that structures data across the organization so you could interact across global lines of business – is that valuable? Of course.

What we need to get back to is the Customer Experience, what problems we are solving, the process flow, because much of the benefits of blockchain can be achieved with Open banking and APIs and a centralized database model.

But don’t count out Blockchain. Regulators are interested. Countries are interested. Corporates are interested, and yes students in MBA schools are interested.

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p.s. The author would like to thank Dave Suter, Head of Platform Strategy at Trade Ix Limited for sharing his thoughts during a recent discussion which led to this piece

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For almost 20 years, David has been running a global research and advisory practice centered on helping banks, vendors and corporations with trade services, trade credit and financial supply chain matters. His formal education includes an Information Systems and Economics degree from Carnegie-Mellon University, an MBA from Purdue, and a Chartered Financial Analyst designation.

The closest thing to a household name in procurement and supply chain, Jason has led the charge as an advocate, futurist and evangelist since the 1990s. Initially at FreeMarkets and then an adviser to Ariba and other firms, Jason branched out on his own to establish the Spend Matters brand (parent company: Azul Partners), which emerged to become the largest news and information portal covering the procurement and supply chain sector. Jason divides his time between research, speaking, corporate finance advisory and mentoring dozens of firms and procurement organizations in the industry.